An investigation into accounting policies of banks

Project Abstract

The accounting policies adopted by banks play a crucial role in determining the financial reporting standards and transparency of these institutions. This research project seeks to investigate the accounting policies of banks, focusing on how these policies impact financial reporting practices and the overall perception of the financial health of banks. The study will involve a comprehensive review of the accounting policies commonly used by banks, including but not limited to revenue recognition, loan loss provisioning, fair value measurement, and off-balance sheet financing. By examining these key accounting policies, the research aims to provide insights into how banks navigate the complex regulatory environment and make decisions that influence their financial statements. Furthermore, the research will analyze the implications of different accounting policies on key financial metrics such as liquidity ratios, capital adequacy ratios, and profitability indicators. Understanding how these accounting policies affect financial performance metrics is essential for investors, regulators, and other stakeholders to make informed decisions about banks' stability and risk profile. Another critical aspect of this investigation is to explore the impact of regulatory requirements and international accounting standards on the accounting policies of banks. With the global nature of banking operations, compliance with various accounting standards such as IFRS and GAAP is essential for ensuring consistency and comparability of financial information across different banks and jurisdictions. Moreover, the research will delve into the challenges faced by banks in implementing and adhering to accounting policies, particularly in the context of evolving business models, technological advancements, and changing regulatory landscapes. By identifying these challenges, the study aims to propose recommendations for improving the effectiveness and relevance of accounting policies in the banking sector. In conclusion, this research project aims to contribute to the existing literature on accounting policies in the banking industry by providing a detailed analysis of the key policies, their implications on financial reporting and performance, and the challenges faced by banks in this area. The findings of this study are expected to have practical implications for regulators, standard-setters, banks, and investors in enhancing the transparency and reliability of financial information in the banking sector.

Project Overview

<p> </p><p><strong>1.0 INTRODUCTION</strong><br><strong>1.1 BACKGROUND OF THE STUDY</strong><br>Since the beginning of corporate form of business entity in Nigeria, the banking sector has been playing important role in promoting economic growth and development by way of providing liquidity and capital in form of loans to firms and private individuals, Izedonmi (2001) noted that banks help to allocate available resources by mobilizing funds from productive channels to finance investment activities in productive sectors and increase capital formation, they also promote financial investment activities by selling their financial securities to the public who in return will require mere performance to be reflected in their financial yearly report.<br>The activity of monitoring banks in Nigeria to ensure that there financial statement are released when due are the Central Bank of Nigeria (CBN) and the Nigerian Accounting standard board (NASB) through the statement of Accounting standard (SAS) and the code of corporate governance which have set pressing issue on standard of financial reporting by banks. Although the formation, development, application and disclosure of these accounting policies and principles has not been fully upheld to as it could be that the policies adopted are not favorable.<br>Accounting policies are specific accounting bases used by corporate firms which are appropriate to the circumstances of the business and suitable for presentation of its results and financial position through the use of fundamental accounting concept, conventions and principles to achieve its objective of a true and fair view of the financial statement since they are to be relied upon by stakeholders. The major accounting policies are in the area of consolidation, segment reporting, foreign currency conversion and translation, investment in subsidiary, depreciation, goodwill, sales of loan and security etc. Different techniques are used by different firm under the implementation of accounting policies. The policy making process involves a network of relationship among policies makers in different firms.<br>The complexity of accounting policies can takes its on financial report, some times financial report can be based on conflicting policies resulting to criticism of such reports; there may be conflict in the implementation of the policies and disclosure discrepancies between policies and report. The quality of financial information is a function of both the quality of accounting standard and the regulatory enforcement or corporate application of the standards (Kothori and Hope 2003). So these policies should be formulated using the standard.<br>It is on this note that the Nigeria Accounting Standard Board (NASB) develop the statements of accounting standards SAS that will guide banks and other corporate entity in the formation of sound and safety accounting policies for the efficiency of reporting in the financial statement. Despite the importance of financial performance of banks to investors and stakeholders there have been few study on the area so this study is attempt to fill the gap, that is to focus on the banking sector and study “the impact of their accounting policies on their financial performance.</p><p><strong>1.2 STATEMENT OF PROBLEM</strong><br>Previous studies have been carried out concerning the accounting policies of the banks and the problem associated with this research are:</p><div><ul><li>The accounting policies adopted by corporate firms might be too complex and conflicting thereby causing disagreement between the different policies and financial reports.</li><li>The accounting policies of banks do not enhance operational efficiency thereby reducing their financial position.</li><li>Banks do not fully respond to the implementation of their accounting policies adopted in requirement with the accounting standard.</li><li>The policies making body of the banks are not fully aware of the accounting standard thereby creating accounting policies that are not up to standard, review of policies become necessary.</li><li>If there is a change in accounting policy of a material item, it always affects their financial position whether negatively or positively depending on the favoritism of the policy. Thus the interest of the researchers dwells on finding solutions to the above mentioned problems.</li></ul></div><p><strong>1.3 OBJECTIVE OF THE STUDY</strong><br>The objective of this research is to find out the impact of some selected areas of accounting policies on the financial performance of banks. Areas of study are:</p><div><ul><li>To find out if the accounting policies of the banks enchance bank operation</li><li>To determine the impact of change in accounting policies on the profitability of banks</li><li>To determine if accounting policies has an impact on banks profitability</li><li>To determine if managers choice on accounting policies confirm to authorized accounting standard.</li><li>To determine if accounting policies of the bank in retaining earnings.</li></ul></div> <br><p></p>